Chinese loan making African countries poorer

Chinese loan making African countries poorer

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Chinese loan making African countries poorer

In the modern era, the debt has become one of the major factors of the economy, through which many nations around the world is surviving. Many developed nations are among the highest under debt nations of the

world, which means that the debt has become necessary to run the economy. Countries like Nepal, Italy, Bhutan and the USA are among the countries which are having the largest foreign debt. But the curiosity arises

that which country is excelling in providing the foreign debt to the other nations. The countries also run the debt policy through which they lend money to the other countries (Wong, 2019).

Now in the world in 2019, China is the leader in lending money to other nations. There are many critics on the current Chinese policies, but there foreign lending has reached the size of the 700 billion dollars, which is

even higher than the size of the lending banks of the world, IMF and World Bank. The Chinese government is now lending the money to the developing nations for developing infrastructure and investment in various

industries, which provides the FDI to the host countries and provides China with a high lending volume.The debt size to the foreign nations by China is dramatically increasing which is alarming many think tanks of the

world, specifically the African countries are one of the largest recipients of the Chinese loan. Many critics have stated the level of the debt to the African nations is unbearable, as they don’t have the capacity to pay off

their debts, but the Chinese Government has claimed that the loans have been invested in the railroads, highways, and airports which is a long-term investment that will be paid off in a longer period.

The heavy funding of the African nations is the result of their eligibility to meet the requirements of the IMF through which they can precure the only to run the economy. The Republic of Congo has borrowed the amount

of the US$2.5 billion from the China, which they have structured to be payed in the period of 156 years (Smith, 2019). According to the Chinese news agencies there are various other African nations which are seeking the

loans from the Chinese government as they are lacking in the credibility to get borrowings from the WB or IMF. Ethiopia has managed to get the loan of the US$3.3 billion from China, during the same period, Zambia is

seeking same kind of package for their own country to build the infrastructure like airports and highways. One of the critics from the University of Helsinki in Finland, that buying of loans of the African states is like

borrowing money from the bank to buy Tesla when I don’t have adequate resources to pay it back. This comment suggests that the profitability of the African nations who are borrowing loans from China will not rise, as

this loan is just to run the government circle which is not enough to develop the nation.

So, What China is getting in return for the higher debt? The first point—– Natural resources. The African nations are full of the natural resources which are unused as they are lacking in the resources through which they

can have access to these. Africa is in the world map like the one of the rich areas according to their resources and most of all, they have a lot of oil under them. Due to these reasons, it has become under the limelight of

the world for foreign investment. Under such conditions, china needs investment in the secure place from there they can have access to the natural resources such as oil. The Chinese Government is working on to get

exceptional access to the natural resources of the nations where they have been working and have lent money. The other kind of minerals which exist in the African nations are as follows: Diamond, Gold, Nickel ,Timber

,Titanium , Graphite, Iron ore and Cooper.

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Second, the strategic position. The location of the African nation is best in terms of the environment and the weather conditions, this becomes the point of attraction for the Chinese investment in the African nations.

Moreover, there is huge work labor exists in the African nations which can be utilized in cheap labor costs. On the other hand, China’s vision towards the one belt one road is a win-win situation for China, as it wanted to

have access to the major shareholder of the trade in the world, through funding the infrastructures of the African countries will help the Chinese traders to shift their goods throughout Africa, and sell their goods in it. The

huge amount of debt is unbearable for the African states to return, this also raises the chances for the Chinese to control the infrastructure by leasing the facilities of transportation.

China also is in the desire to challenge the dominance of the US in African politics, being the second superpower in the world, now China has just one rival in the way towards the world’s largest economy which is the US,

which has great influence in the African nations. The international institutions are working under the umbrella of the USA, which china wanted to change through the high level of lending.

The government of China has adopted diplomacy against the other developing countries of the world through which they can have access to the resources of the borrowing countries. The African countries are getting a

huge amount of lending from the Chinese government, through which they have become under the influence of the Chinese government. Under this diplomacy China is trying to overpower the control of the borrowing

countries by lending them an amount which they can’t afford to pay back. Many of the Indian and the An American journalist has termed this step of China as the wicked one through which they are overpowering the

African nations and spreading their trap in Africa.

There are many countries, which presents the latest example of the indebt of them by the Chinese loan. The most prominent of these are the Sri Lankan loan and the Djibouti debt crisis.

Sri Lankan Government had secured loan from the Chinese Government for the construction of the Magampura Port and the Mattala Rajapaksa International Airport. These infrastructures were built by the Chinese

contracting companies, the money was lent by the Chinese state-owned bank. The inability of the Sri Lankan government to pay the debt, the port and the airport was given on the 99 years of the lease to the Chinese

government state-owned company (Winnie, P.H.Poonb, & Zhouc, 2018).

Djibouti is the country in Africa, which had borrowed money from the Chine, which turned into the excess amount which reached to the level of 70% of the country’s GDP. This was the point where the weak nations have

to yield in front of their creditors, as they have controlled the majority of the infrastructure of the country. China had invested in the infrastructure of the country, which they failed to pay back, now on these conditions

China is influencing the country’s policies, which is altering the country politically and culturally as well.

As in the 15th century, the European nations started the colonization through acquiring the territories of the ports and the modes of transportation. This gave them the power to acquire the major control of the countries,

and they started their business through which they could have a fortune, they could never get in their lands. Like it is obvious that China is striving to become a superpower, and for that, there is one way, which is trade

excellence. The government of China is arranging the facilitates for better trading opportunities for their producers by providing them with the roads and the ports. China is highly investing in the developing countries in

the roads, railroads, and ports, through which they can complete their vision of the belt and road. China is in the desire to have major political control in the countries through which they have access to the major markets

of the world. The political control will provide them with the power to influence things in their favor (Dreher, Fuchs, & Parks, 2018).

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Debt is a source of inequality. The availability of the debts to those nations who are ineligible to pay back is the bright chance for China to acquire control over them. this act of the China is putting the nations of Africa

under the debt trap, which will increase the poverty and the lesser chances of the employment. The average institution of China which lends loans requires the interest of the 3.6 percent. In the at least time of the 12

years as the maturity period. In such cases the countries like Kenya, Ghana, Congo, and many others. The 22 countries of Africa have surpassed the level of debt-to-GDP ration to 55% (Tan, 2019). Many of the times, the

investment which is being done in the African countries, the Chinese people get the most of the leverage from them, as the construction companies are always Chinese while the trading is another the advantage which

they get from the infrastructure, while the poor nations of the Africa needed the infrastructure badly. The influence of China is increasing in this way. For instance, Kenya has a debt of the US$50 billion from China. The

payback of these loans is impossible for the Kenyans due to which the Chinese requires the cultural and political control over the country. The labor which they hired in the manufacturing of the infrastructure was

brought from China, which didn’t help Kenya in sense of employment development (Song & Xiong, 2018)

In recent years, China had tried to make a trade relationship with the 120 countries all around the world. They have made such a relationship strong through the investment in the regions. The USA and China are on trade

war since the last few years as they are competing on the trade .Therefore, the USA has to intervene in the situation of the loaning in Africa, as by many strategic experts, the increasing influence of the China in Africa

may pose a national threat to the USA. As prior to China the USA was the largest trader operating in Africa, but the investment of China reached US$5 trillion in the various nations of Africa made it the largest trading

partner. These positions of the African countries are threating the trading of the USA, which can be intriguing for the USA to intervene to keep Africa away from the Chinese debt trap.

As the China has extended its aid in the African countries, in response to the during the Obama administration, by the introduction of the Power Africa program. This program was based on the benefit to the African

states through the development in these regions. This was the step which could discourage the loans from China, through this program started by the USAID, the electricity resources were to be generated in the African

states. Since 2000, the investment in the electricity sector of Africa, the USA has spent US$20 billion. This huge amount was just meant to discourage the entire Chines control over the culture and politics of the Africa.

But the retaliation by China was even more severe as China invested US$7 billion more dollars then the USA. This has given the edge to the Chinese investment.

The Congress under the Trump administration has moved to fund the U.S. International Development Finance Corporation (IDFC). Through this the fund, the purpose is to build the infrastructure in the African nations

through they can avoid the Chinese loans, but this move of the administration does not work well, as they need to learn from the smart move which China is adopting to invest in Africa.

While the mass media stated that the investment by China in the African state is not performing well in the matter of developing the lives of the natives. Against which the Chinese analyst claims that AidData represents

that the African states which are gaining loan from China are growing. Although they agree to use the investment as the strategic tool to control the influence of the US, but stills they are making the developing countries

better as the infrastructure is an essential part of the country to be developed.

China is increasing its military power, but along with that their main focus is on the increase of the trade around the world through which they can have access to the big markets. Especially they wanted to target the

Europe as the market for their products. For such expansion of the trade, China is working on the one belt formula which will make them successful through the efficient transportation of the goods easily around the

globe. Africa has also been the target for China, now the debt on the many countries of Africa has estimated reached US$417 billion. The rising debt of China is not just limited to the African states, but rather it is

expanded to the USA as well. The other nations of the Asia and America are under the debt of the China.

Work cited

Dreher, A., Fuchs, A., & Parks, B. (2018). Apples and Dragon Fruits: The Determinants of Aid and Other Forms of State Financing from China to Africa. International Studies Quarterly.

Smith, E. (2019, Oct 9). The US-China trade rivalry is underway in Africa, and Washington is playing catch-up. Retrieved from cnbc.com: https://www.cnbc.com/2019/10/09/the-us-china-trade-rivalry-is-underway-in-africa.html

Song, Z., & Xiong, W. (2018). Risks in China’s Financial System. Annual Review of Financial Economics.

Tan, W. (2019, Jul 19). About half of China’s loans to developing countries are ‘hidden,’ study finds. Retrieved from cnbc.com: https://www.cnbc.com/2019/07/12/chinas-lending-to-other-countries-jumps-causing-hidden-debt.html

Winnie, M. L., P.H.Poonb, & Zhouc, L. (2018). Are Chinese credit ratings relevant? A study of the Chinese bond market and credit rating industry. Journal of Banking & Finance.

Wong, E. (2019, Jan 13). Competing Against Chinese Loans, U.S. Companies Face Long Odds in Africa. Retrieved from nytimes.com: https://www.nytimes.com/2019/01/13/world/africa/china-loans-africa-usa.html

Chinese loan making African countries poorer

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